GNP, M&A, EBITDA, P/E, NASDAQ, Econo-thread Part 10

[Adam Smith]

The savings rate el-f mentioned though is more the household financing position (if I understand correctly?) where those would be counted as an expense.

Waaaaaaiit a minute. Is this right? In other words, every time people take advantage of tax law changes to put more money in 401k's, IRA's, 529 plans and the like, the savings rate measured in this way goes down? If so, we have a misleading statistic if I ever saw one.

[el freako]

Adam Smith,

They would be included in the savings rate, I think Roland said that because he was not sure what I deducted to get 'net savings', because I only deduct residential investment then those savings are included.

[Roland]

Originally posted by Adam Smith
Waaaaaaiit a minute. Is this right? In other words, every time people take advantage of tax law changes to put more money in 401k's, IRA's, 529 plans and the like, the savings rate measured in this way goes down? If so, we have a misleading statistic if I ever saw one.

Nope. El F is actually using something between financing position and savings rate.

If you have 100 in disposible income, take 10 in credit, and spend 90 on consumption, 10 on residential investment, and 10 on a 401k:

Your financing position is -10.
Your savings rate is +10.
Your ElF rate () is 0.

That is simplified because we haven't dealt with depreciation.

EF:

"In Q1 2000 US net household saving (that gross saving less investment, mainly in housing) was -5.4% of disposable income."

Net saving in the usual definition would rather be gross saving minus depreciation of assets, would it not ?

The personal savings rate is a net savings rate though; the main depreciation is in residence and that is already reflected (IIRC it is subtracted from proprietor/rental income; another way would be to look at it as part of consumption).

So if you use the savings rate from the personal income and outlays, you have a net savings rate. I'm not sure why you'd subtract "investment" - if you subtract all accumulation of assets, you arrive at the financing position anyway.... why use something inbetween ?

[Colon™]

Here’s an interesting piece by Kasriel I’d like you to read. (I assume Roland already has)

[pchang]

Hey Colon

Still planning on visiting us here in the US? If so, I probably have some more useful information for you.

[Colon™]

Yes, SF for certain, this summer... In case you'd like to email it to me, my adress is cesar.raes@pi.be

[DanS]

Continuing the article passing while I try to digest what ef has said, here's an FT article about comparative productivity--the point being that there is a possible continuation of divergence rather than convergence. I think that Wolf overplays the strengths of the US and the weaknesses of the EU, except when it comes to an area that isn't productivity-related--demographics. So I started thinking about demographics. The US has a beautiful demographic picture for the foreseeable future, which should moderate inflation. Even though Roland downplays how bad Europe's looks, I think it doesn't look good at all.

[DanS]

Take a gander...

United States (Beautiful)
China (Tough times)
India (The success story of the next century, if they can weather the changes)
Italy (Awful--looks like depopulation on a black death scale)
Germany (Not too good)
France (Not too good)
UK (Not as bad as Italy, but...)
Russia (Oof...)

[Colon™]

What exactly is the point wrt demographics here?

I don’t understand why Wolf is making so much use of arbitrary and short time ranges. Y-Y productivity growth has been stronger up to now than it was in previous recessions and so what? Japan trounced US during the entire 80’s, so why should one be impressed by a merely good comparative performance over just half a decade?

[DanS]

I think what is being ventured here is that the US has returned to pre-'73 productivity growth, while Europe is experiencing something lower but different--the first part re the US seems plausible to me, while the second part re Europe doesn't. I guess that the reason why it's the timeframe that he uses is because that's the only timeframe that supports the argument that he's cautiously putting forward.

WRT demographics, I just like to look at top-line numbers and cheerlead for my country. Since population growth (and the configuration of that population) is a main determinant of economic growth, I was interested in it. Particularly interesting to me is India's demographics. India will be a behemoth, with a nice look demographic profile, barring nuclear exchange with Pakistan (edit: or mass starvation, or a plague, or a massive tsunami or whatever. ).

[pchang]

Demographics

I don't really see much difference between the demographic trends of the USA and China. I would like to see Japan. I have heard that theirs looks worse than Italy. (2050 would be a very pointy inverted triangle).

[DanS]

Japan (not as bad as Italy)

Look at 2050 for the starkest difference of China versus the US.

I keep going back to India and look at what will be a huge population explosion. Everybody talks about China rising, but India will be the real 5,000 lb. gorilla. Very smooth distribution.

[Roland]

Originally posted by DanS
Even though Roland downplays how bad Europe's looks, I think it doesn't look good at all.

We can debate that but not on those animated blink-crap. My eyes!

Demographic projections to 2050 are just wild guesses, btw. And how they influence output is another thing. My favourite projection is that France's population would drop to 27 million. That was projected in 1930 for the year 2000.

About the FT: The Commission (and esp Laakinen) are desperate to paint a US challange to get some pet projects through, and some in the press may take up that line. The article is incredibly silly, but I'm sure he just copied and intrapolated a bit one from those late 80s Articles about the Japanese challange....

[Colon™]

Dan, regarding pre-'73 productivity growth, what is it? Why assume this is the ‘right’ level in the first place? Don’t forget the post WW2 period was a time a lot of deferred investments were implemented that were delayed due to the depression and the war, so this time period was exceptional as well. For reasons mentioned previously, the depression and war periods aren’t representative either, and neither do I believe to roaring 20’s to be which would only leave the pre-WW1 period “as normal”. (and that only because I haven’t thought of reasons to consider this period exceptional )

Anyway, IMO isn’t much point in talking about a “return” to a “normal” productivity growth, because I think it's an empty concept.

[DanS]

Does anybody have a basic explanation of what productivity is, from an economics standpoint? Four or five paragraphs would do nicely. From a layman's perspective, productivity always seems like a black hole, even though it's an important concept for top line numbers. Almost like some place for economists to put things that they can't explain fully.

Colon: '48-'73 = 3.3%, '74-'95 = 1.5%, '96-'01 = 2.6%, '48-'01 = 2.5%

I feel at a disadvantage of understanding when discussing the numbers immediately following WW2. From my cursory reading of all of the numbers, productivity in the US died in '73 with the first oil shock (and probably a host of other factors). Or maybe it was '77 with the second one. I have anecdotal evidence to suggest that US productivity was ripe for a "correction" in many sectors (e.g., auto workers who didn't do a lick of work), once exposed to external competitors.

I do recognize that productivity gains fluctuated before '73 and that a 5-year stretch normally isn't remarkable, but there isn't a 5-year stretch pre-'73 that was below 2.6% ('69-'73 was 2.7%). So these number seem to break the 20-year mold in their duration and strength.

Roland: Do you have a feel for what pet projects the Brits as a whole are trying to get through? It seems to me that the Brits focus on comparative issues an awful lot, and Wolf isn't much of a hand-wringer. This wasn't near the doom and gloom of the report linked earlier in the thread. That one was scary. Anyway, I guess the Brits feel like a Euro-US bridge of sorts.

"Demographic projections to 2050 are just wild guesses, btw."

Probably not for the US. We have a pretty clean growth trend that is supported by known variables. I would agree that European numbers may not be as well known, especially in places like Russia, where good economic times may encourage a baby boom.